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Compare and contrast the different valuation methods. Describe all the possible sources of external funding, both...
Compare and contrast the different valuation methods. Describe all the possible sources of external funding, both formal and informal. Describe three ways in which an investment is exited.
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Expert Solution
Different type of valuation methods are-
A. Absolute valuation-this type of valuation method will be calculating the absolute value of a share by calculation of the intrinsic value of share depending upon the discounted cash flows related to share and it is used to find the intrinsic value of the share and those valuations are used to find whether the sales are undervalued or overvalued.These valuation can include methods like discounted cash flows method or enterprise valuation method.
B. Relative valuation method-this is a type of valuation method in which the shares are priced according to the ratios and standards which are existing in the industry and they are based upon the value of the competitors so this is a relative valuation method in which the stock personal valuation criteria is not undertaken, this could be related to price to book method or price to earning method or price to earnings growth method.
This both type of valuation method is highly used in the business valuations and intrinsic value is relatively rigid kind of valuation method whereas relative valuation is kind of flexible.
different source of external funding could be through equity funding or debt funding or crowdfunding or internet funding or foreign funding etc.
Formal types of funding which are external funding will be mostly related to formal sources of funding like funding by commercial banks or venture capitalist or Angel investors.
informal type of external financing will be involving also sources which will be including from funding of family members and friends along with personal retained earnings.
Three ways in which an investment is exited are ad follows-
A. Selling of the investment through secondary markets.
B. Selling of an investment through initial public offer by the promoters
C. Selling to the private parties
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